I had the opportunity to meet Mike at the first FINCON in Chicago last year. He’s a thoroughly nice guy. I knew him from his blog and website, but for some reason I hadn’t known the extent of his authorship. I found out at FINCON that he’s written several books (9 of them if I count right) on personal finance. They mostly lean towards the topics of investing, but even encompass Social Security and business structure. After meeting Mike, and learning about his books, I made it a point to pick one of them up to read and review. Well, over a year later, I finally made it to the reading and reviewing part.

Since I’m not much of an investor, I thought that it would be a double good idea to pick up the Investing Made Simple title he wrote. I can review something he’s written, while probably learning a few things along the way. Investing made Simple is an excellent book. It’s short, which makes it an easy read, and the writing style is light, without all the technical investing jargon that’s typical to an investing book.

It’s not an in depth book on investing, but it wasn’t intended to be. What it is intended to be is a short (100 pages or less) book that will give anyone the basics of investing while setting them on the right track to a successful investing portfolio. I think he accomplished that.

I think one of the things that many beginning investors, including myself, get bogged down in is that the world of investing is a pretty big world. There’s all these different ways to invest in something. There’s shorts, longs, calls, margin, options, commodities, ETF, bonds, and the list goes on. And on. But, when the beginning investor, who knows little to nothing about investing goes looking for information to get them started, it’s a whole lot of overwhelming. Piper lays it out simple and easy. He gives you the meat of what you need to successfully invest for the long term, while quietly informing you that you’ll likely be better off ignoring most of the stuff that’s confusing you.

What you end up with is a book with all the basics of investing in a small package. But, you also end up with something that, for most people, is also a complete investing manual. Keep it simple, and invest wisely is the order that I took away from reading Investing Made Simple. I think it should be recommended reading for all beginning investors.

Goodness! Did you see what the markets did yesterday? Down almost 400 points! If you haven’t already, you had better join the rest of the world in getting out while you still can. The era of easy gains in the stock market and guaranteed returns has officially ended, and it isn’t pretty. It’s time to let go of the bull market ideals. Do you know what happens to a bull in a room full of bears? Here. Let me show you.

Seriously. Those bears are going to eat you alive! Sell everything you got now. Take it out in gold, and head for the hills. Don’t forget the canned supplies and vegetable seeds for after the apocalypse that will follow! Quit your job, pack your family up, and head for North Dakota. We’ve got plenty of oil field jobs available. (see: Bakken formation) And with a bunch of liquid black gold running over your fingers, you won’t need to worry about the crashing stock market anyways!

Ok, obviously, this whole post is a little bit tongue-in-cheek, with the exception of the North Dakota part. We really do have plenty of oil field jobs available. Best economy in the U.S.A., in fact. And, even if the post weren’t tongue-in-cheek, and you took it seriously, you really, really, should talk to a financial professional before making any thing resembling a sell everything move. The whole post was all for the enjoyment of myself, MoneyMamba, and others who felt that there would be a whole plethora of posts by our colleagues touting the benefits of dollar cost averaging and long term views on the stock market. They may be right, but sometimes you just have to poke a little fun. 😉

Despite my best efforts, I don’t know everything about finances, stock markets in particular, so please don’t construe this as advice. It isn’t.

For the past month or so, I’ve been performing a bit of an experiment. I’ve been taking 10% of all income from this and my other sites and splitting it between an investment account and my Lending Club portfolio. The idea, of course, is to see which performs better.

In order to do that, I needed to find a good way to calculate what the real rate of return to me is. Here’s the formula I settled on.

I should qualify the rest of this by saying that I’m not the best at math, so there may be flaws here. Feel free to let me know in the comments. Also, if there’s a better way to go about this, please let me know in the comments as well.

So, let’s break that down a bit. The *.97 part is meant to give some accounting for inflation. It takes 3% right off the top as an inflationary cost. Is 3% enough? That’s debatable, but it seems like a fair average, historically. This bit: (Total Interest Received – Fees Paid) is merely the total income on the portfolio. I’m missing a small bit here, as the cost of the principle is not equal to the actual principle of the portfolio. That’s because I live in a state where Lending Club doesn’t have the right permissions to allow me to directly invest in the loans. So, I’m having to go through their foliofn note trading platform to buy my notes and there is usually a small premium on the notes. I haven’t decided on a good way to really include that in, or if it really should be. The next bit, (Total Deposits / ((Total Deposits + that previous bit is basically determining the % growth. Total deposits divided by current “balance”. The 1- part at the beginning just gives the cleaned up decimal percentage.

Let’s walk some numbers through it. We’ll use these:

Total Deposits = $1000

Total Interest Received = $25

Fees Paid = $5

So, plugging those numbers in we get: (1-(1000/((1000+(25-5))*.97)))

We’ll do this old school and solve as we go, showing our work. Parenthesis get priority, followed by addition and subtraction. So, we next end up with (1-(1000/(1020*.97))). Then, we end up with (1-(1000/989.4)). Next step, 1-1.011 = -.011. So, we get a return of -1.1%.

Seems logical right? In the case of my portfolio, the result comes back as 10%. That’s a pretty good number, if you ask me. I haven’t had any defaults yet, and I’ve had loans in my portfolio since January of 2010. (the experiment I talked about earlier only began in July, however, but previous portfolio is included for easy of calculations)

I’m sure there’s some much more complicated formula that would take in risk of default on remaining invested principle, and a way to get the most accurate number, but really, I’m not sure that I want to take it that far. This will never get to the point, I don’t think, of having a majority of my overall portfolio in it. It’s not nearly safe enough for that, and my retirement accounts will remain in more traditional markets.

But, with results like 10%, and the current state of the stock market, one has to begin to wonder if the stock market is the safer of the two markets. The stock market certainly isn’t showing returns of 10% recently.

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